How Warren Buffett spent $6.5 billion to help Mars buy Wrigley in 2008

  • Warren Buffett spent $6.5 billion to help Mars buy Wrigley during the financial crisis.
  • The investor bought $2.1 billion of Wrigley’s preferred stock and $4.4 billion of the bonds.
  • The candy deal was “completed without pause while panic reigned elsewhere,” Buffett said.

Warren Buffett shelled out $6.5 billion to help Mars buy Wrigley in October 2008, cementing one of the few mega-mergers during the financial crisis and creating a global confectionery giant. Here’s a closer look at how the legendary investor made the deal happen.

Candy fanatic

Buffett guzzles Coke, eats See’s Candies and slurps down Blizzards at Dairy Queen.

Not surprisingly, the suave CEO of Berkshire Hathaway was a fan of Wrigley and Mars years before he got involved with the maker of Juicy Fruit and Altoids, and the confectioner behind M&Ms and Snickers.

“I’ve been doing a 70-year taste test since I was about 7 years old on the products,” he told CNBC after the Wrigley-Mars merger was announced in the spring of 2008. “And they met the 70-year taste test.”

In fact, Buffett was singing Wrigley’s praises more than a decade before the deal. He compared it to Coke in terms of enduring market share in his 1993 letter to shareholders.

“Ignoring chewing gum, where Wrigley is dominant, I don’t know of any other significant business where the leading company has long held such global power,” he said.

Buffett also praised the simple business model in his 2011 letter.

“‘Buy goods, sell brands’ has long been a formula for business success,” he said. “It has produced enormous and sustained profits for Coca-Cola since 1886 and for Wrigley since 1891.”

Buffett’s familiarity with the candy business and both Wrigley and Mars products made him feel comfortable handling them during a difficult time.

“I understand a Wrigley or a Mars much better than I understand the balance sheets of any of the big banks,” he told CNBC.

“I don’t know what oil or wheat or soybeans or cocoa or anything like that is going to sell for next week or next month or next year,” he continued.

“I know people are going to be chewing Wrigley gum and eating Mars bars.”

“They knew the check would get rid of”

Wrigley accepted a $23 billion takeover offer from Mars in April 2008, paving the way for the pair to bring their brands under one roof, share talent and insights, and consolidate their sales, marketing and distribution infrastructure.

Privately held Mars decided to pay $11 billion itself, secure a $5.7 billion debt facility from Goldman Sachs, and enlist Buffett and Berkshire to provide the rest of the financing.

“We are a very good fit as a partner for what the Mars family wanted to achieve with this purchase,” Buffett told CNBC at the time.

“They needed someone they felt comfortable with, they knew the check would be removed, who wouldn’t interfere in any real way,” he added.

Buffett agreed to buy $2.1 billion of Wrigley’s preferred stock, which paid a 5% annual dividend and gave him a 10% stake in the company. He also committed to buy $4.4 billion in Wrigley bonds that bore 11.45% and matured in 2018.

The Mars-Wrigley deal closed about six months later in October 2008, just weeks after Lehman Brothers collapsed and the US financial system took hold.

Buffett trumpeted the transaction, along with Berkshire’s investments in Goldman Sachs and General Electric, in his 2008 shareholder letter.

“We like these commitments very much,” he said, highlighting their high yields and the equity that Berkshire received in all three cases.

Buffett also cited the deals in the 2009 letter as examples of Berkshire providing important liquidity to companies during the crisis.

The Mars-Wrigley merger was “completed without pause while elsewhere there was panic,” he said.

Buffett added to his Wrigley investment in December 2009 when he bought $1 billion of the group’s 5% senior notes, due in 2013 and 2014. Berkshire’s filings provide few details about the notes, but they appear to have been settled in time.

Buffett doubled his money

Nearly five years after the merger, Mars contacted Buffett and asked to buy back Berkshire’s Wrigley debt early. The investor demanded that the candy giant pay a premium of 15.45% to the bond’s face value as compensation.

Berkshire received just under $5.1 billion in October 2013, achieving a return of $680 million on its $4.4 billion outlay. It also earned about $2.5 billion in interest over the five years it held the notes based on their 11.45% yield.

Mars approached Buffett again in 2016 when it wanted to buy him out and take full control of Wrigley. The confectioner originally had the option to buy back up to half of Berkshire’s Wrigley shares during the 90 days from October 6, 2016, but had to wait until 2021 to redeem the rest.

Buffett agreed to sell all of his Wrigley shares for about $4.6 billion in September 2016. The steep premium reflected the value of the future dividend he was giving up.

As a result, Berkshire made a $2.5 billion return on Wrigley stock. It likely earned another $840 million in dividends when it held the stock for about eight years.

Add up the gains on the bonds and stocks with interest payments and dividends, and Buffett made an estimated $6.5 billion from his Wrigley venture. He doubled his money himself before underwriting the second tranche of Wrigley bonds he bought in 2009.

Buffett was happy with his investment and his return, he told Forbes in October 2016.

“I have enjoyed all of Berkshire’s experiences with the Mars family and management and wish them the very best,” he said.

“Both Mars and Berkshire have benefited from our investment, and that’s the way it should be,” he added.

Read more: Warren Buffett counts See’s Candies among his most famous businesses. CEO Pat Egan explains how the chocolate maker is thriving despite pandemic disruption and painful inflation.

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